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GINO SA: Distribution channel management
BURNERS:➢ Body
electric circuit
damper
fan
valve
pumpcontrol box
➢ Head
Three types of burners manufactured…
★ Domestic
★ Commercial
★ Industrial
AREA MARKET SIZE
GINO SALES
Europe 574 276
North America 433 45
Asia 291 36
Rest of World 250 24
Total 1,548 381
Table 1: World Market for Burners 1999 (in thousands of units)
GINO SA
Founded in 1931
Headquarter in Paris, France
Over 50 models of burners
In house production capability
well established channel network
International exposure
Range Output range(kcal/hour)
Gio production in 1999
Domestic 50,000-300,000 329
Commercial 300,000-2,000,000 49
Industrial >2,000,000 3
Total 381
Table 2: Gino Worldwide Production in 1999 (in thousand of units)
GINO Beijing Office
Set up in 1995
Functions➢ Marketing research and
campaigns➢ administration of
distribution channels➢ technical support and
counseling➢ key account and OEM
business development
David Zhou- China Marketing manager
Supervised 3 assistant marketing managers
Reported to Jean-Michelle Pierre- Asia’s specific manager
The Burner Market in China Prior
to 1990
➢ relied to coal
➢ boilers were coal-combustion with no burners
1990-1995
➢ emphasis on pollution control
➢ oil-combustion burners
➢ world’s major manufacturers enter China
Continued…
1995-1998
➢ applications of burners increased
➢ Chinese local factories too began to manufacture
➢ Gino gained in domestic market
Post 1999
➢ growth in domestic was modest at best
➢ commercial range became mainstream
➢ demand for industrial was estimated to grow
Customer buying process
MANUFACTURERS
Distributor 1
Distributor 2
- - -Distributor n
second-tier value added dealers
OEM customers
direct to end users
Distributor 3
Why manufacturers refrained from direct sales…
losing a distributor will make it difficult to achieve annual sales target
difficulty in providing service and spare parts
how to price their products
Who are OEM customers… boiler factories or car
painting booth makers where burners are core components
They try to bypass distributors to buy directly from producers
What is OEM’s buying process…
Believe in “word of mouth”
pay “intelligence” visit to other OEM
approach design institutes
contact existing customers, see frequency of a certain brand of burner
use criteria of price, reputation, service, spare, supply it would focus on one or two brand
Market Segmentation
➢ Domestic boilers and water heaters
➢ Commercial boilers and other industrial applications
➢ Industrial boilers
Domestic Boilers and Water Heaters
Volume of these factories ranged from 50 units to 1,500 units per annum
avg. 250 units
Avg. price RMB2,500 per unit
market size RMB194 million
Commercial boilers and other Industrial applications
Volume 22,000 units
avg. price of RMB9,000
Market size RMB198 million
Industrial boilers
60 manufacturers produced 3,400
ang. price RMB65,000
Market size RMB221 million
Range Market Size
Domestic 79,900
Commercial 20,080
Industrial 2,920
Total 102,900
Table 3: Estimated sizes of Ranges in Number of Units Sold
Gino enlisted 3 distributors…
➢ Wayip Trading Co. in Guangzhou
➢ FUNG’s Co. in Shanghai
➢ Jinghua Mechanical Company in Beijing
Distributors carried only Gino burners and spares
Revenue split between burners and spares- 80/20
Jinghua made and sold boilers but profit was lower than burners
FUNG had textile machinery
Wayip’s 100% business was Gino burners
Jinghua FUNG’s Wayip TOTAL
Domestic 4,354 3,075 3,458 10,887
Commercial
876 433 568 1,877
Industrial 37 48 52 137
Total 5,267 3,556 4,078 12,901
Table 4: Distributor’s Performance Statistics in numbers of units sold-1999
Distributors’ FunctionsCredit functions: Distributor has to open a letter of credit
Stock functions:Distributors are required to make 3 month order forecast to Gino
Sales and service function:Distributors are required to perform after sales service
PricingTransfer price(US$):Free on board price in US dollars quoted to distributors Base Price:total acquisition cost to distributorsconversion factor: 12.32
Public Price(RMB):public customer price released on market named “guidelines for price”
Contact Price(RMB):actual transaction price distributor reach in a transaction with customer
Assigned to Gino China for next 3 years…
➢ annual combined sales volume of 15,000 units➢ annual sales of industrial burners of over 200 units➢ developing more distributors to cover area not
covered ➢ providing more marketing and technical support to
distributors➢ develop a minimum of two OEM accounts ➢ improve service and spare supply➢ build brand image
Distributor Behaviour
Demand for Better terms
Stolen Sales
Reluctance to stock industrial burner
Feima Boiler Co. Ltd. Leading boiler factory in China
Purchased 350 domestic, 50 commercial and 3 industrial burners from Jinghua
Approached Gino for OEM status to obtain better prices
Zhou liked to give Feima OEM status because… ➢ this would combat bargaining power
of distributors
➢ good opportunity to break into well entrenched customer in industrial burners
➢ could increase sales
➢ could develop more OEM business in China
Jinghua opposed this because…
➢ it believed Gino should not develop distributors’ existing customers as OEM
➢ this would set a bad example and could destroy their confidence in coperating with Gino
Decision should be made considering several aspects…
Response from other two distributors
message that will be sent to competitors
Attitude of Gino’s corporate management
Jinghua accounts for 40% of Gino’s China revenue
The best possible solution for Gino is to ask Feima to remain loyal to Jinghua while asking Jinghua to sell burners to Feima at lower prices.
The other solution is to consider Feima as OEM and provide Jinhua with increased benefits like increasing its territory or the profit margins
Created by:
Saumya GuptaNIT SuratIntern under Prof. Sameer Mathur, IIM Lucknow.
www.IIMinternship.com